1. Chapter 3- Individual Markets
Objective – Students will be able to answer questions regarding supply.
SECTION 1
© 2001 by Prentice Hall, Inc.

2. The Law of Supply
The Law of Supply states that all else being equal, as price falls, the quantity supplied falls, and as price rises, the quantity supplied rises.

3. Plot the following:
Price
Quantity Supplied P Qs $6 2 7 3 8 5 9 9

4. S Qs Definitions: Quantity supplied--it is the amount that will be
is the entire
curve. Qs
just a point on the
curve. Q
Definitions:
Quantity supplied--it is the amount that will be
sold at a specific P.
Supply--it is a schedule of quantities of goods and
services that will be sold at various prices
at a specified time, all other things held constant.

5. Price DOES NOT CHANGE SUPPLY!!!!!!!! Price changes Quantity Supplied S
is the entire
curve. Qs
just a point on the
curve. Q
Price changes Quantity Supplied
Price DOES NOT CHANGE
SUPPLY!!!!!!!!

6. Changes in Supply N.I.C.E.J.A.G.
Natural/Manmade Phenomenon
Input Costs
Competition
Expectations
Profitability of alternative goods in supply
Profitability of goods in joint-supply
Government action

7. Changes in Supply N.I.C.E.J.A.G.
Natural/Manmade Phenomenon
Natural disasters
Weather
Wars
Riots
Strikes
Pretty much anything not covered under your homeowner’s policy causes supply to change.

8. Changes in Supply N.I.C.E.J.A.G.
Input Costs
Prices of raw materials or other factors of production
Changes in technology
Changes in productivity (efficiency gains/losses)

9. Changes in Supply N.I.C.E.J.A.G.
Competition
Number of producers in the market
Ex. Fewer producers = less supply
More Producers = more supply
Competitive Market supplies more than Monopolistic Market

10. Changes in Supply N.I.C.E.J.A.G.
Expected Prices
If producers expect prices to rise in the future, then they supply less now, so that they can sell their good/service at the future higher price
Ex. If you expect your stocks to increase in value, then you are inclined to not sell them now, but instead you are inclined to sell them later at a higher price

11. If producers expect prices to fall in the future then they supply more now while prices are still relatively higher
Ex. If you expect your stocks to decrease in value, then you are inclined to sell them now

12. Changes in Supply N.I.C.E.J.A.G.
Profitability of goods in joint-supply
If the supply of beef increases, then the supply of leather increases
If the supply of artichokes increases, then the supply of artichoke hearts increases
Think by-products

13. Changes in Supply N.I.C.E.J.A.G.
Profitability of alternative goods in supply
If farmers can make more money growing pineapples instead of bananas, then the supply of pineapples will increase and the supply of bananas will decrease
If auto manufacturers can make more money selling SUV’s instead of sedans, then the supply of SUV’s will increase while the supply of sedans will decrease

14. Changes in Supply N.I.C.E.J.A.G.
Government action
Business taxes
Regulation
Subsidies (money from govt)

15. Changes in Supply
When there is an increase in supply, the supply curve shifts to the RIGHT.
When there is a decrease in supply, the supply curve shifts to the LEFT.
Example: Graph the market for gasoline if a hurricane destroys several oil refineries.

16. Section 1 Assessment
Graph the market for cigarettes after the passage of a major cigarette tax. State the determinant of supply that changed that caused the change in supply.
2. Graph the market for Microsoft stock if people expect that the company will be releasing a report stating that Microsoft’s earnings are down. State the determinant of supply that changed that caused the change in supply.

17. Summary: In a paragraph, describe what you have learned today.